Chevron Unveils $18.3B Capital Expenditure Budget for 2018

Chevron CorporationCVX recently announced its capital and exploratory spending program for 2018. Budget for capital projects is reserved at $18.3 billion, lower than this year’s estimate of $19.8 billion. Per the company, capital spending for the next three years will be in the range of $17-$22 billion per annum. Of the total budget for 2018, $5.5 billion is meant for affiliated companies' expenses.

The overall 2018 budget is 4% lower than the one provided for 2017. It has been declining for the last four years. Per the company, it is focusing on growth projects, which will add to the company's cash flow in the next two years, including the Permian Basin assets. Completion of several projects and enhanced efficiencies in the company’s operations were also responsible for the lowered budget for 2018.

The company however expects production to grow in the coming year driven by its Permian Basin play. To sustain the current producing assets, the company will bear costs of around $8.7 billion, of which $3.3 billion will be utilized for the Permian Basin. Per Chevron, $1.0 billion will be used for other shale and tight rock investments. The company's assets in the Tengiz field of Kazakhstan were allotted $3.7 billion while the downstream projects were allotted $2.2 billion.

About the Company

San Ramon, CA-based Chevron is one of the largest publicly traded oil and gas companies in the world, based on proved reserves. It is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals, and other energy-related businesses. The company divides its operations into two main segments: Upstream and Downstream.

In the third quarter, Chevron generated $5.4 billion in operating cash flow, while shelling out around $5.2 billion in capital expenditures and dividends. This led to around $200 million in excess cash flows – something the company achieved for the first time since 2012. Going forward, we expect Chevron's free cash flow to improve significantly given the company's initiatives to reduce costs, exit unprofitable markets and streamline the organization.

However, we remain concerned about the challenges faced by Chevron's U.S. production. The company produced 681 thousand oil-equivalent barrels per day in the third quarter, down 2.4% year over year and 2.9% sequentially. The poor performance of the region – despite output increases in the Gulf of Mexico and the Permian basin – could be attributed to asset sales and natural field declines in other areas.

Chevron has gained 1.6% year to date compared with 3.4% growth of its industry.

Houston, TX-based ConocoPhillips is a major global exploration and production company. The company’s sales for 2017 are expected to increase 24.4% year over year. The company delivered an average positive earnings surprise of 152.3% in the last four quarters.

Minnetonka, MN-based Northern Oil and Gas is an independent energy company. The company’s sales for the fourth quarter of 2017 are expected to increase 51.9% year over year. The company delivered an average positive earnings surprise of 175% in the last four quarters.

Dallas, TX-based Holly Energy is a production pipeline company. The company’s sales for 2017 are expected to increase 10.4% year over year. The company delivered a positive earnings surprise of 57.1% in the third quarter of 2017.

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